Capital structure and innovation: causality and determinants

It is widely recognized that a firm’s financial behaviour is the result of a complex mix of conditions, both internal and external to the firm; these may affect its investment decisions and its growth opportunities. This paper offers a twofold contribution to the empirical debate on the financing of...

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Bibliographic Details
Published in:Empirica 2013-02, Vol.40 (1), p.111-151
Main Author: Bartoloni, Eleonora
Format: Article
Language:English
Subjects:
Balance sheets
Bankruptcy
Capital
Capital structure
Causality
Credit
Econometrics
Economic behaviour
Economics
Economics and Finance
Equity
European Integration
Financial information
Financing
Hypotheses
Income
Industrial Organization
Innovation
Innovations
International Economics
Investigation
Investments
Italians
Macroeconomics/Monetary Economics//Financial Economics
Manufacturing
Original Paper
Panel data
Profitability
Public Finance
Studies
Surveys
Venture capital
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Summary:It is widely recognized that a firm’s financial behaviour is the result of a complex mix of conditions, both internal and external to the firm; these may affect its investment decisions and its growth opportunities. This paper offers a twofold contribution to the empirical debate on the financing of innovation. First of all, it provides a comprehensive descriptions of possible simultaneous patterns which may affect a firm’s relevant dimensions, namely innovation inputs, innovation output, leverage and profitability. By using a Granger-Causality framework we will show that a firm’s leverage does not cause innovation output, as proxied by a measure of a firm’s successful innovation, while it is rather caused by successful innovation and a firm’s operating profitability. The second contribution is an original investigation of the determinants of a firm’s capital structure based on a panel of Italian firms which links the third Community Innovation Survey with an administrative data source providing economic and financial information collected from balance sheets and income statements referring to the period 1996–2003. This paper provides support for the pecking order theory as our firms are less indebted when operating profitability increases, but the use of external funding increases with their innovative effort. We also find support for the existence of credit constrains which seem to affect small innovative firms when compared with larger enterprises.
ISSN:0340-8744
1573-6911
DOI:10.1007/s10663-011-9179-y